WPP Martin Sorrell says tax 'a question of judgement'

Sir Martin argued that companies such as Google and Starbucks pay tax more out of a sense of corporate social responsibility, than because the law forces them to.

"Doing good is good business," he said.

WPP has just moved its headquarters back to London from Dublin, reversing a move it made for tax reasons in 2008.

Sir Martin moved WPP's tax domicile to Ireland in protest at the potential "double taxation" of corporate profits proposed by the then Labour government.

When the new coalition government dropped the plans, Sir Martin agreed to relocate the group back to London.

Sir Martin's comments, made in an interview with BBC News, come after a public outcry was sparked by revelations that multinational companies such as Starbucks, Google and Amazon paid little or no UK corporation tax.

There are the rules. If then companies choose... in terms of building their long-term brands to make a contribution to all the stakeholders, all credit to themSir Martin Sorrell, Chief executive, WPP

Starbucks subsequently said it would pay "a significant amount" of extra tax in 2013 and 2014, possibly as much as £20m, "regardless of whether the company is profitable".

In response, HM Revenue and Customs said corporation tax "is not a voluntary tax".

As companies only pay corporation tax on profits made in this country, there were accusations that multinationals moved parts of their operations abroad in order to try to reduce the amount of tax they pay in the UK.

Sir Martin argued that in a globally inter-dependent world, where some companies operate in hundreds of countries, firms interested in building long-term brands would not "do things that will upset consumers".

He pointed out that Starbucks had negotiated the additional corporation tax payment with HMRC. "They didn't do anything underhand at all," he told the BBC.

When asked what the right model should be on corporation tax, he replied, "The right model is you make a contribution.

"All contributions you make to your stakeholders are a question of judgement.

"There are the rules," he said. "If then companies choose... in terms of building their long-term brands to make a contribution to all the stakeholders, all credit to them."

Late last year, Chief Secretary to the Treasury Danny Alexander said paying tax was an obligation: "It is not something you can just chose to do willy nilly because you think it will please your customers."

Hostile environment

In a wide-ranging interview, Sir Martin forecast that WPP would see 2%-3% global growth in 2013, with "significant double-digit growth" coming from China.

But he warned that the environment would remain hostile for businesses everywhere.

"It's been a very gruelling year and next year is going to be more of the same. You're in the trenches and it's hand-to-hand combat. Corporates are not happy bunnies at the moment."

Corporate balance sheets were generally healthy, he said, but bosses were reluctant to invest because of uncertainty over a number of issues, namely:

the continuing eurozone debt crisis

tension in the Middle East, including Syria, Egypt, Iran and Israel

the US's "fiscal cliff" spending cuts and tax rises - although a deal has just been reached in Congress to avert most of these for the next two months

slowing growth in powerhouse emerging economies, such as China.

These "known unknowns" he dubbed "grey swans", in a reference to Nicholas Nassim Taleb's book "The Black Swan", about the nature of unpredictability.

WPP's investment in 2013 would be directed mostly towards high-growth economies, such as Colombia, South Korea, and Vietnam, he said.

"We'll go where the growth is," he said.

On the subject of corporate pay, Sir Martin admitted that consultation over his proposed £6.8m pay deal had been badly handled in 2012, but he argued: "If we want world leaders... we have to be competitive. Pay levels within our company have to be competitive with our competition."

WPP operates in 110 countries, has 163,000 employees and is the largest marketing communications group in the world.

Its well-known brands include Young & Rubicam, Hill & Knowlton, and Ogilvy.